What metric indicates the effectiveness of an organization in processing deductions?

Days Deductions Outstanding (DDO) is a key metric that measures the effectiveness of an organization in processing deductions. This metric quantifies the average number of days it takes for an organization to resolve or clear deductions from customer payments. A lower DDO indicates that the organization is efficiently handling deductions, thus improving cash flow and reducing the time that outstanding deductions remain on the books.

In the context of deductions, which may arise from disputes or discrepancies in invoices, having a clear measure of how quickly these issues are resolved is essential for managing accounts receivable effectively. Organizations seek to minimize the DDO to enhance their financial performance and maintain better relationships with customers by quickly addressing their concerns.

The other options, while relevant to various aspects of accounts receivable, do not specifically address the processing of deductions. For instance, average revenue per transaction focuses on profitability rather than efficiency in managing deductions. Similarly, the number of customers serviced and the volume of sales transactions indicate overall business activity but do not provide insight into the processing of deductions specifically. Thus, focusing on DDO helps organizations identify areas where they can streamline processes and improve their performance in a critical area of cash management.